Trump Calls on OPEC to Lower Oil Prices, but US Producers Could Suffer

During the World Economic Forum in Davos, President Donald Trump urged OPEC states to reduce oil prices to pressure Russia into ending the conflict in Ukraine. However, this move could potentially harm the thriving US crude industry.

OPEC has been limiting supply to elevate prices that have recently declined. Trump believes that lower crude prices would incentivize Russia to negotiate and end the war.

Though non-OPEC nations dominate the global oil market, OPEC's production levels still influence other oil-producing countries. In 2020, a dispute between Saudi Arabia and Russia flooded the market with supply, crashing prices and leading to bankruptcies and layoffs in the US oil industry.

Trump's intervention then resulted in production cuts. However, the US energy industry remains vulnerable to price fluctuations. Declining prices erode profitability and disincentivize productivity.

Capital Economics estimates that oil prices would need to fall only marginally below current levels for the development of higher-cost new wells in key US oil regions to become uneconomical. This would hinder Trump's ambitions to tap into Alaska's high-cost oil reserves.

OPEC, which has historically used supply manipulation to address rivals or enforce cartel discipline, may respond to Trump's request. Recent reports indicate that Saudi Arabia has considered unleashing supply to regain market share. Trump's call could provide the pretext for such action.

Following Trump's comments, oil prices have declined. Brent crude, the international benchmark, traded at $78.11 per barrel at the time of this writing. Analysts anticipate a supply glut to weigh on prices through 2025, even without OPEC's intervention.